The Australian dollar has been the performer this week with strong bullish closes on every trading session, pushing the AUDUSD into fresh highs. We’ve been focusing a lot on the AUDUSD because it’s been dropping some nice clean price action signals.

On the AUDUSD daily chart you can see the market has just fired up higher off the back of a bullish rejection candle with a strong close to the body. Now the market has breached a key containment level and floating at new highs, we are waiting for pullbacks into the mean value for buying opportunities.

We’re watching the important level marked on the chart to hold as support. A bullish price action reversal signal will be the icing on the cake here. The area we’ve got the spot light on also should line up nicely with the mean value, which creates a “hot spot” or high confluence area to look to get long.

The pair remains trapped in a range as it looks to create directional moves. This development leaves it vulnerable to the downside possibly towards the 101.27 level. Below here will expose the 100.75 level with a violation aiming at the 100.00 level and subsequently the 99.50 level. Its daily RSI is bearish and pointing lower suggesting further decline. On the upside, resistance resides at the 102.62 level. A cut through here will aim at the 103.00 level and then the 103.50 level, its psycho level. On the whole, USDJPY faces downside pressure on correction.

The GBPUSD market recently broke a key level after a large bearish rejection candle formed right on support. The rejection candle was covered more in detail in our previous post: GBPUSD bears putting heavy pressure on support.

Now the market has broken downwards and produced modest bearish movement from the support breakout event, we’ve started to see the market recover from some of those losses in a counter-trend retracement in this weeks trading.

This counter-trend movement is to be expected, and in fact we need these movements to occur to bring price back to it’s mean value where we can look for trade opportunities. We’ve got our sights lines up on a bearish ‘hot spot’ where an important support or resistance level lines up with the mean value. If a bearish price action signal printed here on the daily chart would over a nice low risk/high probability trading opportunity. Keep your eyes pealed.

The AUDUSD daily chart price action shows the market is slowly making its way upwards, in a slow grinding upwards trend. Last session the market tried to sell off but the bulls got involved at the mean value and drove prices back higher to close the day higher than it’s open.

This is a strong rejection candle and its very likely we will see higher prices develop from this setup. Keep and out for any further retracements back to the mean to grab a tweaked entry price to this bullish momentum. The overhead resistance may be a trouble area here but the bullish pressure here is mostly likely to eventually over come the containment line, which could lead to the next extension upwards of the uptrend.

The results of the latest stress tests on the biggest US financial institutions and banks reveal that their capital positions have improved over the past five years, and that they are “collectively better positioned to continue to lend to households and businesses and to meet their financial commitments in an extremely severe economic downturn than they were five years ago,” says the press release from the Fed.

The “extremely severe downturn” is the most severe stress scenario – a massive recession, crash in equities of over 50%, high unemployment and a slide in housing prices to 2001 levels. If such a situation lasted nine quarters, the 30 bank holding companies that were subjected to the test would collectively suffer about $366 billion in loan losses, estimates the Fed.

In such a situation, the tier 1 common capital ratio would fall from the actual 11.5% as at the end of Q3 2013 to 7.6%. This is a marked improvement over the post-stress number of 5.5% estimated in 2009.

“The annual stress test is one of the Federal Reserve’s most important tools to gauge the resiliency of the financial sector and to help ensure that the largest firms have strong capital positions,” Federal Reserve Governor Daniel K. Tarullo said.

Of the 30 banks, only one, Zions Bancorporation, failed the minimum threshold of 5% capital ratio.

Fitch says US credit ratings at AAA, stable

In a separate but positive development, ratings agency Fitch affirmed the U.S.’s long-term foreign and local currency issuer default ratings, as well as its senior unsecured foreign and local currency bonds at a AAA (triple A) with stable outlook.

The reasons for the outlook included the management of the country’s debt limit in a timely and judicious manner, a decline in the federal budget deficit and low financial-sector risks.

Figures released yesterday by Statistics Canada show that the Core Consumer Price Index for February 2014 rose 1.2% on a year-on-year basis, surpassing market forecasts of 1.1%. Though ahead of expectations, the reading was still well below the bank’s inflation target of 2%.

CPI data

The core CPI is defined by the bank as the CPI (the headline inflation index) less eight of the most volatile components (fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, inter-city transportation and tobacco products) as well as the effect of changes in indirect taxes on the remaining components.

The Consumer Price Index for February 2014 climbed 1.1% on an annualised basis versus market expectations of 1.0%.

“The smaller year-over-year rise in the CPI in February compared with January was mainly attributable to gasoline prices, which fell 1.3% in the 12 months to February, following a 4.6% increase in January. On a monthly basis, gasoline prices rose 2.3% this February, a smaller increase than in the same month a year earlier (+8.4%),” clarified the report from Statistics Canada.

Retail sales

The country also posted encouraging data on retail sales, which grew 1.3% on a month-on-month basis during January 2014, surpassing estimates of 0.7% growth by a comfortable margin.

“Retail sales rose 1.3% to $40.7 billion in January, partially offsetting the decline in December. Gains were reported in 7 of 11 subsectors, representing 83% of total retail sales,” said the report from Statistics Canada.

Effect on the USDCAD

The twin data, which came out better than expected, led to a jump in the USDCAD pair.

We note in the chart below that the pair has broken out of a pennant formation and may be headed higher.

It is significant how the 50-day moving average has provided strong support to the pair on three recent occasions, shown by the Up arrows.

Tags: retail sales, USD/CADComments Off on USDCAD breaks out of a pennant after bullish CPI and retail data

The FOMC meeting, chaired for the first time by Janet Yellen, announced the third instalment of a $10 billion cut in its monthly bond purchase program, a part of its quantitative easing agenda for bolstering the US economy.

The FOMC clearly placed recent slowdown in economic numbers at the door of adverse winter weather, at least partly, and was therefore encouraged to continue with the measured reduction in quantitative easing that was indicated in December 2013. At the press conference, Yellen also said that the FOMC expects “sufficient underlying strength in the economy to support ongoing recovery in the labor market.”

On interest rates, the FOMC pledged a continuation of a low rate regime, and delinked them from the hitherto 6.5% unemployment benchmark. The committee said it will now consider “a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments,” while maintaining a trajectory towards maximum employment and inflation of 2%. Analysts have dubbed the new system as “qualitative guidance.”

However, the markets were comforted by the words, “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

Later, at her press conference, Yellen hinted that the Fed could start raising shorter term interest rates within six months of the end of the asset purchase program, causing a sharp jump in bond yields, such as the 10 year UST whose yield jumped to 2.77% from 2.74% before the Fed’s press release. The DJIA hit the day’s low losing 210 points.

Gold was a major casualty of the Fed event – it continued its sell-off as highlighted yesterday and in the chart for today.

The dollar strengthened across the board, as shown in the ellipse on the chart of the dollar index below.

Russia’s annexation of Crimea became a fait accompli once the region voted through a referendum to secede from the Ukraine and become a part of Russia. Putin, pleased with the result, expansively assured Russian Parliament that he has no intentions of taking over other Ukrainian territory, as suggested by speculative rumours.

These developments have taken out a major pressure point in the geopolitical situation surrounding the Ukraine, and as a result, the recent ‘safe haven’ appreciation in gold has taken a big hit. Markets are now factoring in de-escalation in the tensions between Russia and Western powers.

Gold has fallen for the last three sessions, primarily as a result of the cooling in Ukraine, but also after the yellow metal corrected technically from the recent highly overbought levels, nudging investors towards taking some recent profits off the table. Gold is currently trading at $ 1344.

On the daily chart above, however, we note the emergence of a bearish “three-black-crows” candlestick formation as shown inside the golden ellipse. Interestingly, the price has reversed from the upper boundary of the rising channel in effect since December 2013. The parabolic SAR has also moved above the price indicating the likelihood of a negative trend.

It is not inconceivable that price could move down as low as $ 1310.

Is gold telling us something about the FOMC meeting?

The US Federal Open Market Committee will meet today and tomorrow for its rate policy decision to be followed by a press conference by Fed supremo Janet Yellen on Wednesday – her first in the new position. The market expects a continuation of the “taper” of $ 10 billion out of the monthly bond purchase program, though some circles expect a further cut in purchases. The markets are also looking forward to any indication of a policy change in respect of interest rates.

Economic data out of the US has been trending better in the recent past, and a Bloomberg survey says it is likely the Fed will draw courage to trim the bond program further. The drop in stimulus could further impact gold bearishly.

Tags: FOMC, gold, ukraineComments Off on Gold drops as Ukraine appears to de-escalate

Forex trading is not just about knowing the rules and terminologies of the trade. It is also about the different strategies that traders need to adopt for gaining success in it. The personality of the traders is an important aspect in this regard. Start with examining the strength and weaknesses of your character trait, for instance, how you will feel if you get an opportunity or what will be your feeling, if you suffer a loss. Make sure that you can adapt well to the varied trading conditions in multiple time frames. It is important for the trading style to match with your personality, or you will soon lose the passion for it.

Plan your trade

You need to plan the trade well in advance; this helps in knowing the trading limits and also the goal. This will also help to take prompt action, if the market behaves the way you have predicted it to do. Never get emotionally attached to the trade. Always remember that every day is not the winning day for traders, and you also need to accept the loses open-heartedly. Based on your strategy, you should have the knowledge of the time that is best for buying and selling the currency. In Forex trading, it is important to be patient and wait for the entry point. Always set realistic goals, so that you can fetch consistent returns every year.

Assess the trading methodology

After you have set the financial goals, now it is the time to determine, how to achieve it. You need to assess the trading methodology that you follow to fulfill the goal. You can do this by analyzing the last twenty trades and calculate the profit that you have earned. This can give a clear picture of the effectiveness of the methodology that you have adapted. Ensure that you have ample resources to fund your trading. The capital used in this form of trading is also known as risk capital. Make sure that you can afford to lose some amount of it without affecting your lifestyle.

Test the currency pair

Test the currency pair that you are planning to trade with, in different time frames. You can start with weekly ones and move on to the hourly or daily charts. Try to determine the trend of the market in various time frames, as this can help you to know, how to trade the currency in those time frames. Once you are determined that you will trade with specific currency pair, then do a background research about them. Go through the recent updates and reviews and tally with the data reflected through the price chart. There is no one-size-fit-all trading system available. Trading is more about the individual trader and their mindset and practices.

Track your trading

You need to pick the methodology that will suit your need and test it in different time frames. This can help you to assess the success rate of the methodology that you follow. With appropriate risk management, you can fetch high profits. Measuring the risk and reward ratio and setting the limit is also important. Try to avoid the mistakes that can lead to severe loses. You can keep a track of the date, time and the strategy that you adapted when you entered the market and the same when you exited it. Also keep a note of the rate at which you entered and exited the market. You can also note the profit or loss percentage, as this helps to identify the trend well in the future. Do not forget to use the best binary options broker, it ensures that you will get a good payout. If the interface is user-friendly, it will also help in smooth trading.

On Thursday, Australia reported that the number of people in employment rose by 47,300 – a number triple that of the 15,000 anticipated by analysts.

Though, the unemployment rate remained stubbornly unmoved at 6%, a ten-year high, the jobs data was one more positive reading from the Australian economy in recent days. It also indicated that jobs growth may be coming out of sectors other than the traditional resource and commodity oriented areas.

Jobs on offer in non-mining sectors

According to Genevieve George, managing director at Oneshift, an online employment-search firm, quoted in an article by the Wall Street Journal, huge increases in jobs activity are being observed in sectors such as hospitality, construction and retail.

Encouragingly, 80,500 full-time job positions were added this week, a far cry from the previous reported figure of 2,700. It may be noted that this was the second-highest gain in full-time positions ever recorded, the first being in August 1991, which saw an addition of 87,000 jobs.

GDP growth

The Australian economy grew a higher-than-expected 2.8%, year-on-year, in the last quarter of 2013.

However, recent data such as the NAB Business Confidence during February (7 versus 9 previous), the Westpac Consumer Confidence during March (-0.7 versus -3.0 previous) and growth in Home Loans during January (0.00% versus consensus of 0.5%) was unimpressive. Consumer Inflation Expectations for March printed 2.1% versus 2.3% previous.

Given that the labour market responds to economic growth by a lag, analysts expect that employment numbers could improve further down the line. Meanwhile, the RBA has indicated it is comfortable with the current benchmark interest rate pegged at 2.5%, as it waits for the investment cycle in the country to recuperate from the recent downtrend seen in capital flows to resource-based industry.

How the jobs number affected AUDUSD

The positive print on unemployment boosted AUDUSD, as shown in the golden ellipse in the chart above.

However, the pair appears to be facing headwinds from the horizontal line shown in the above chart and marked as ‘neckline.’

It can be observed that AUDUSD has formed a reverse head – and – shoulder pattern on the daily chart above and we need to wait for a convincing break out from this pattern as well as a move above the 200 day moving average shown by the green line in the chart.

Earlier this week, New Zealand took the first step towards a more hawkish interest rate regime.

The country lifted its OCR to 2.75% and indicated that three or four more similar hikes could follow.

Analysts are divided on the timing of these rate hikes, but most agree on April, June and July. It may be noted that New Zealand gets credit for being the first amongst the developed countries to bite the bullet on hardening interest rates.

Rationale

Here are some key bullets from the statement issued by Reserve Bank Governor Graeme Wheeler justifying the decision, along with relevant charts:

New Zealand’s economic expansion has considerable momentum, and growth is becoming more broad-based. GDP is estimated to have grown by 3.3 percent in the year to March.

Domestically, the extended period of low interest rates and continued strong growth in construction sector activity have supported recovery.

Prices for New Zealand’s export commodities remain very high, and especially for dairy.

A rapid increase in net immigration over the past 18 months has also boosted housing and consumer demand.

Confidence is very high among consumers and businesses, and hiring and investment intentions continue to increase.

The high exchange rate remains a headwind to the tradables sector. The Bank does not believe the current level of the exchange rate is sustainable in the long run.

While headline inflation has been moderate, inflationary pressures are increasing and are expected to continue doing so over the next two years.

Inflation is a key driver for the rate hike decision.

“By increasing the OCR as needed to keep future average inflation near the 2 percent target mid-point, the Bank is seeking to ensure that the economic expansion can be sustained,” said the Governor in the statement.

NZDUSD Technicals

On the daily chart above we note that a striking rounding pattern has developed over the past few months.

This is a bullish pattern, and after the RBNZ announcement, price broke momentarily above the rim of the saucer (the red horizontal line), but pulled back thereafter.

USD/JPY’s fall from 103.76 suggested that the previous support zone had turned into resistance. This fact had brought in the first wave of bearish sentiments and those got stronger when the pair failed the resistance zone which remained in place during February 5th to February 26th. This previous resistance zone was expected to turn into support to keep the near-term bullish outlook intact.

Support and resistance zones of USD/JPY

The recent low has retested the support level of March 3, 2014 when the price touched exactly 101.20, as indicated in the above chart.

The bearish signal from daily Ichimoku cloud

As shown in the above Ichimoku cloud chart, the a medium strength bearish signal followed the medium signal bullish signal almost immediately when the Tenkan line moved below the Kijun line inside the cloud. The story did not end there and the price action broke below the lower edge of the cloud to strengthen the bearish sentiments.

Are all hopes lost for the near-term?

The price has not yet broken below the previous support of 101.20. moreover the recent trend pattern has been a support near 200-day moving average. The current 200-day moving average is at 101.13. We will stay cautious in considering further weakness till the price action does not break below 101.13 decisively.

What to expect?

The previous support at 101.20 had indicated that the 50% Fibonacci retracement level of the move from 96.94 to 105.44 had turned into support. The recent low has again tried to retest that support. However, a decisive break below 101.13 will represent a break of that support as well as the support of 200-day moving average. Such a move will move the focus towards 100.75 first and then towards the 61.8% retracement of the above mentioned move i.e. 100.19.

Do check the various updates of USD/JPY outlook and share your opinions in the comment box below.